Anatomy of a Stock-Murder
Socially responsible investing (SRI) used to be considered a bastion of liberal-do-gooding-tree-huggers. Over the last decade, though, informed investors have come to know that not only can it make you money, but it can let you invest-with-your-values and prevent ugly blow-ups in the stock price.
SRI, now known as "ESG" (Environmental Social Governance) is now accepted as a critical step that lets an analyst look past short-term performance to what matters, longer-term. While I'm going to feature Wells Fargo here, I could talk about dozens of cases where ESG allowed Fiduciary Advisors like Skye Advisors to use ESG analysis as a critical step in best-practices-portfolio-construction.
This Wells Fargo info-graphic is a "postmortem" on how company executives murdered the stock's price. Beginning in 2016, a series of ethical violations kept sprouting up, but Sustainalytics, our big-data-miner on ESG factors, had already given them a score of 3 (out of 100) on their "Social" score. Why, you say? Problems with the company's culture had alerted ESG investors, who had already sold Wells Fargo stock.
So, if you had waited for this first newsflash; "Starting in 2016, regulators called out Wells Fargo, stating employees created several million unauthorized bank and credit card accounts without client knowledge" you had already seen Wells Fargo top a year before.
Following that first round of ethics charges there were a series of fines, but the violations, and fines, kept coming.
Here is info-graphic but this chart tells all: check out how WFC, JP Morgan and the S & P 500 fared since 2015...when WFC worries first hit socially conscious analysts.
Climate change, social media, cybersecurity, sexual harassment, diversity and inclusion, common-sense gun control, for-profit prisons, the health care and opioid crisis...these are only a few issues that have been hitting headlines. They have, and will continue to, do harm to your portfolio if you don't find out how to screen them out, before the damage is done.